Futures traders in Trading arcades

As electronic trading in the U.S. has reached critical mass, opportunities for traders have exploded. The tipping point came this year when Chicago Mercantile Exchange’s flagship Eurodollar contract made a dramatic move from open outcry to screen trading in less than a year, helped by the competitive threat of Euronext.liffe listing Eurodollars on its Connect platform. Eurodollar trading on Globex reached 74% in November, up from just 8% a year ago. At the Chicago Board of Trade, 87% of the financial futures volume is now being conducted online as of November 30. This, combined with the non-U.S. contracts previously available electronically, means that the deepest pools of liquidity anywhere in the financial futures universe are now available on the screen.

Electronic trading firms have been springing up since talk of the demise of the trading floors began more than a decade ago. When the then-Deutsche Terminborse launched its trading platform in the early 1990s tech savvy traders took notice. As more contracts became available electronically, e-trading firms began to crop up, mostly in London and Chicago, but it wasn’t until Liffe shut down its trading floor in 2000 and launched Connect that they became more of a force in the marketplace. Not only was a new platform available to traders, it was the first “open” architecture system that allowed independent service providers and brokerage firms to develop their own front-end order routing technology. In addition, a whole community of sophisticated traders was on the street looking for a way to salvage their livelihood and duplicate some aspects of the floor trading environment.

History is repeating itself in Chicago where, although the floors have not closed, the number of e-trading firms has grown in volume and influence over the last five years as the liquidity in the major contracts has moved online. While there is no reliable data available to the public on the share of the futures trading that these firms represent, anecdotal evidence suggests that it is significant. In fact, some of these firms say their daily volume across markets exceeds the total daily volume of any one of the four big futures exchanges. Euronext.liffe estimates that independent traders, its term for individuals and firms trading for their own accounts, make up about one-third of the entire universe of people trading on its Connect platform, and account for as much as 50% of the volume in its short-term interest rate contracts.

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